Fitch keeps India’s GDP forecast unchanged at 8.5%

Fitch keeps India’s GDP forecast unchanged at 8.5%

New Delhi: Rating agency Fitch today kept its forecast on India’s growth rate unchanged at 8.5% for FY’11, but brought down the next two fiscals’ projection by 50 basis points each fearing inflation and widening current account deficit.

“Fitch maintains its forecast for FY’11 with Gross Domestic Product (GDP) growth expected to be 8.5%, supported by the 8.8% Y-O-Y outturn in Q2’10," Fitch said in its quarterly Global Economic Outlook.

While India’s less reliance on exports for growth partly helped Fitch to reaffirm its optimism, it warned that a weak global economy could pose risks to India’s inward foreign direct investment, an important growth driver.

“The relatively low share of exports in GDP (22% in FY’10) partly insulates India from higher risks to growth in the advanced economies, although foreign direct investment is an important growth driver and would pose a downside risk to Fitch’s forecasts in a global double-dip scenario," Fitch added.

Fitch has also trimmed India’s GDP growth rate forecasts for FY’12 to 8.5% (from 9%) and for FY’13 to 8% (from 8.5%) on fear of hardening of inflation and widening of current account deficits.

India’s current account deficit came in at 2.9% of GDP for FY’10, up from 2.4% in FY’09 and the widest since FY’91, partly on a 17% Y-O-Y surge in services imports.

The country’s food inflation climbed 0.98 percentage points to 16.44% during the week ended 18 September, from 15.46% in the previous week, on higher prices of vegetables, milk and pulses.

Finance Minister Pranab Mukherjee had earlier said, “At the end of this year we will be able to surpass our GDP growth forecast of 8.5-8.75% given in the Economic Survey".

The Indian economy grew by 7.4% in FY’10 after moderating to 6.7% in 2008-09.

Meanwhile, the rating agency expects that the Reserve Bank might increase policy rates by another 50 basis points in the current fiscal to “lean against any further acceleration in growth".

The apex bank had hiked the policy rate by 100 basis points to 5.75% so far in 2010.